By Patience Saghana
Insurance companies operating in the country have the options to freely go into Merger and Acquisition (M & A) or haveÂ the law compel them to do so as the National Insurance Commission (NAICOM) says 51 insurance companies operating in the country are too many.
Commissioner for Insurance,Â Mr Fola Daniel in an exclusive interview with Vanguard in Abuja said that the insurance regulator is planning to further reduce the current number of insurance companies in the country.
According to him, â€œAs a matter of fact, the 51 companies we have in the insurance industry at present is too large. What we are planning to do really, is induce voluntary merger and acquisition. The 51 insurance companies is too large in the sense that the premium being generated in the industry as at date is not proportionate to the capital injected into the industry
â€œWe think the number of insurance companies should be reduced but we do not think it should be statutorily compelled. We will do our best as a regulator to showcase the need for bigger and stronger companies.Â We are going to create conditions that will make mergers and acquisitions attractive.
â€œThere is need for us to have companies come together and become stronger and significant players in the market. We in NAICOM will love to see insurance industry having half the number of insurance companies we have at present. And will also love that 60 per cent of the half are life companiesâ€
The Commissioner said, â€œIdeally, insurance industry should generate five times the premium they are generating currently. With a market capital of over N500billion, the industry should generate five times the premium of the capital but we are not doing that. The 2007 figure available to us indicated that insurance industry generated N120billion premium and N120billion from N500bllion is a huge deficit. It is an indication that we are under utilising the capital made available to us.Â One would have expected that there should be huge enhancement in the industryâ€™s premium income from the 51 companiesâ€.
He said, â€œOne of the powers of the commission is to evaluate the books of insurance companies and advise them appropriately. We can look at the books of ten insurance companies that are on the same pedestal and advice them to go and talk to themselves in order to explore merger and acquisitionâ€
The Insurance commissioner said the commission would rather prefer that insurance companies of like minds come together and merge or be acquired than being forced by the law into merger of strange bird fellows.
And to this end, the NAICOM boss said that the commission would sensitize board of directors of insurance companies on the need to have stronger insurance players in the sector.
He stated, â€œThe commission will parley with directors of insurance companies and we are going to bring to fore common issues that are recurring in the companies and also use that platform to talk to the directors about mergers and acquisitions while we will bring in experts in mergers and acquisitions to also talk to them in order to prepare their minds in that directionâ€.
â€œWhy merger and acquisition is difficult in this part of the world is because of personality ego.
Two companies want to come together but neither of them want to relegate power. The chairman of one company will not want to step-down for the other.
NAICOM will sensitize directors on the fact that theyÂ have to be directors inÂ companies that are well run and is getting good business.
That they can have ample time to do other things whilst their investments in the companies are growingâ€
â€œLook at oil and gas insurance for instance, we fashioned out a regulation and we are saying that for any company to do oil and gas business, it must have N 7 billion but the statutory minimum is N 3 billion meaning that for any company to be a minimal player in the oil and gas business, it needs more than 100 percent of the minimum capital. When you look at oil and gas business, having an asset base of N7billion is still a drop in the ocean. It only enables a company to have a bite of the business.
Meanwhile the commission had refused to license new companies because of the large number of companies in the industry.
NAICOM boss, â€œThat explains why we have not issued new license. My office is being flooded with applications for new licenses but we have refused to issue one. Even for brokers that are intermediaries, we have been very hesitant to issue more brokers licenses because we believe that the existing companies should properly consolidate and do good business.
Increasing the number may not get us to where we are going more especially that the new entrants are only seeking to share in the existing businesses and not that they have new business module that would open new windows or expand the horizon of the market. We do not see the coming in of new entrant as encouraging. And for that reason, we said No to new entrants.